ETF Trades & Updates: Energy Early & Broad Gains Already By: Christopher Mistal | November 04, 2021 | Email | Print

As the top month of the year for S&P 500 (since 1950), Russell 1000 and Russell 2000 (since 1979) and second best for DJIA (since 1950) and NASDAQ (since 1971), November has historically and frequently been a solid month for equity bulls. In the most recent 21-year period, average gains have even been improving for DJIA, S&P 500, Russell 1000 and Russell 2000. However, strength has not been evenly spread across the entire month. 

 

As you can see in the following seasonal chart based upon daily performance over the last 21-years, November has typically opened well with nice gains spanning the first four trading days. Following this move higher the major indexes have tended to trade sideways and modestly lower until the last seven trading days at which point, they have historically sprung back to life and surged higher to close out the month. If you missed our Seasonal MACD Buy signal in October and/or are looking for a dip to add to existing positions, November may provide that opportunity.

 

 

 

There are no new sector seasonalities that begin in November, however oil companies typically come into favor in mid-December and remain so until late April or early May in the following year (yellow box in chart below). This trade has averaged 5.8%, 5.0%, and –0.4% over the last 15-, 10-, and 5-year periods. Sizable declines in 2017 and 2020 have depressed average performance and seasonal strength in crude oil has been ending sooner, typically in late April or early May instead of late June or July over the past ten years. This seasonality is not based upon the commodity itself (crude oil or natural gas); rather it is based upon NYSE ARCA Oil & Gas index (XOI). This price-weighted index is composed of major companies that explore and produce oil and gas.

 

 

Both crude oil and natural gas have risen sharply since the darkest days of the pandemic and its resulting global economic shutdown. Cuts that were made to production last year have not been unwound quick enough to keep up with surging demand during the reopening recovery. Additionally, the recovery appears to have created new demand as many commuters appear to prefer private transportation over public. Today’s announcement that OPEC and Russia intend to stick with their current plan of only modest increases in supply despite numerous calls for more also appears to be bullish for crude oil prices in coming months.

 

SPDR Energy (XLE) is the top pick to trade this seasonality. A new position in XLE could be considered near current levels up to a buy limit of $57.65. Employ a stop loss of $51.89. Take profits at the auto sell of $73.19. Exxon Mobil is the top holding in XLE at 22.36%. The remaining top five holdings of XLE are Chevron, Schlumberger, EOG Resources and Pioneer Natural Resources. For tracking purposes, XLE will be added to the portfolio using its average daily price on November 5.

 

 

 

Over the last week the market has continued to rally and all positions in the portfolio were in the black as of the close on November 3. Thus far the top performing position is SPDR Consumer Discretionary (XLY) up 13.2%. Earnings expectations for many traditional brick and mortar stores were apparently way too low as numerous beats in the most recent quarter helped to propel shares higher. Recent strength in Tesla (TSLA) and Amazon (AMZN), the second and first largest holdings of XLY, have also contributed significantly. iShares DJ US Tech (IYW) and iShares Semiconductor (SOXX) are also up double digits since being added to the portfolio.

 

With the exception of SPDR Gold (GLD), all other positions can still be considered on dips below their respective buy limits. There is ample time remaining of the Best Months and individual sector seasonalities for these positions to rise further. GLD is on Hold as its corresponding sector seasonality comes to an end in December. Semiconductor and Telecom strength has also traditionally ended in December, but more recently, strength has been lasting longer. Please see the next table for updated buy limits and stop losses.

 

 

Tactical Seasonal Switching Strategy Portfolio Update

 

Our overall outlook remains bullish for the Best Months. Thus far, this has been the correct view as the average gain in the Tactical Seasonal Switching portfolio is 6.7% since we issued our Seasonal Buy Signal. Invescos QQQ (QQQ) is the best performing position, up 9.0% as of November 3 close. The laggard so far is SPDR DJIA (DIA), up a still respectable 4.1%. iShares Russell 2000 (IWM) is also up an impressive 7.5%. It would not be surprising to see IWM take the top spot from QQQ as the strongest part of small-cap historical seasonal strength does not begin until around mid-December.

 

Based upon November’s typical seasonal pattern presented above, all positions in the portfolio can be considered on dips below their respective buy limits. As a reminder, these positions are intended to be held until we issue corresponding Seasonal MACD Sell Signals next year after April 1 for DJIA and S&P 500 and after June 1 for NASDAQ and Russell 2000. As a result, no stop loss is suggested on these positions.